The Rise of Obamacare

I’m back once again after a brief hiatus, since I devoted most of my time on reviewing for my final. Last time we talked about American health insurance industry and the need for a major reform due to the lemon problem that leads to market failure in the industry. If you haven’t read my previous article, I would highly recommend you to spend your time on reading it. Here is the link: http://econoobics.blogspot.com/2014/11/the-health-insurance-sector-asymmetric.html.

To remedy this market failure, the Obama’s administration enacted one of the most important piece of social policy legislation in American history in March 2010 known Patient Protection and Affordable Care Act (PPACA) or Affordable Care Act (ACA) in short. To simply understand the Affordable Care Act (ACA) A.K.A Obamacare, the legislation could be separated into three main parts. Dr. Aaron Carroll made an analogy between Obamacare and a table with three legs. Without further ado, let’s go through each of the three main parts.

http://www.freedomworks.org/content/obamacare-politicians-dreams-are-debased-slothful-governance

In the previous article I hope you still remember that the health insurance companies, in order to maximize its profit, would deny health insurance coverage enrollment if you are found out that you have any pre-existing condition due to the fact that you are more likely to get sick than other clients. Even if you are already insured by the insurance companies and constantly pay the premium to the insurance companies, chances are that you also could be denied payment of your medical cost in the event that you have any pre-existing condition but you purposefully or inadvertently conceal that information during your enrollment. Thus, to fix this broken health insurance sector, the Affordable Care Act (ACA) issues a mandate that prevents health insurance companies from discriminating health coverage against Americans with pre-existing conditions or denying medical payment to those with pre-existing conditions. What that means is that I will be able to claim my medical payment for the prior sickness that is not reported during the enrollment. In addition, young adult can stay covered by their parents’ health insurance plan until they are 26.

http://www.frontpagemag.com/2014/dgreenfield/va-switched-to-processing-obamacare-applications/

The first mandate is probably a bitter pill for the insurance companies to swallow because they would be in trouble if only sick people purchase health insurance coverage when they know that they would get ill soon and healthy people refuse to purchase health insurance until they are at the age of being vulnerable to sickness or know that they would get sick soon. It seems like Obamacare is hurting the insurance companies. Awesome as it may appear to American people, the insurance companies would not be foolish to enter this health insurance market given that there is a high chance of making a loss or possibly raise the premium of the health insurance. The question is how can the government make everyone buy a health insurance. Well, one way is to raise awareness that health insurance is a buffer against future financial hardship in hope that people will buy the insurance which takes longer. There is another way which is more immediate and the federal government has every rights to do so which is to force everyone to buy one. To remedy this situation which is unfavourable to the insurance companies, we come to the second leg of the table - the second mandate of the ACA known as the individual mandate. At the consumers side, the ACA mandated every Americans older than the age of 26 to purchase a health insurance coverage or otherwise face a penalty. You see, the aim of this individual mandate is that the insurance companies would be able to identify the distribution of risk (getting sick) of the American people when a large proportion of Americans buy the the health insurance due to a classic and beautiful statistical concept known as the law the large number. The large of large number simply states that the larger the sample is, the closer and closer the sample mean is to the population mean. From this distribution, the insurance companies can have enough information to charge a health insurance premium commensurate with the likelihood of a person getting sick. In addition to understanding the distribution of getting sick, the ACA also needs young and healthy people who are less prone to illness to help pay for the cost of people who get sick. But that does not mean that there is no point for the young and healthy people to buy the health insurance. You see, sickness and accident is not foreseeable and it does not necessarily mean that a young person never get sick. Thus, to prevent any future financial hardship as a result of a disease, it is wise for the young people to get the insurance. If this mandate can go as planned, the ACA will be able to solve the lemon problem that is a result of asymmetric information.

Last but not least, the ACA does not end here. What happen to those who can’t afford a health insurance plan? There certainly will be a group of people who are not able to afford the health insurance premium, as this may not surprise you since health care in America is very costly. To help those at the bottom of the pyramid so that they are also insured, the ACA also provides subsidy to those who can’t afford it. More specifically, you will be subsidized if your income is less than 400% of the federal poverty level (FPL). That is, subsidy will be provided if you make less than approximately $46,000 if you live alone or approximately $94,000 for a family of four according to Dr. Carroll’s Youtube’s video. You can see the information on the FPL in detail by going to this link: https://www.healthcare.gov/glossary/federal-poverty-level-FPL/. The Federal Poverty level in 2014 is $11,670 for individuals and $23,850 for a family of four.

Folks, those are the important parts of Obamacare: health insurance company mandate, individual mandate and subsidy. We would like to wish that the ACA will be a success but it seems like that not many people are happy with it especially the Republicans who is now controlling both the Congress and Senate. When a social policy is as huge as the ACA, it is almost impossible to avoid talking about politics. Obamacare is one example of how the government can intervene in the market and takes the matter into their own hands without relying on the invisible to do its job. The debate is still going on and we have to wait and see whether the ACA will achieve its goals. I hope to see you in the next article possibly related to efficiency and equity. Have a Merry Christmas and a delightful New Year! See you New York City and DC!  

I have learned a lot from Dr. Caroll and I added some of the information from him. You can view his video at: https://www.youtube.com/watch?v=wBr3fniyb4w

(This blog does not represent the view of any organization or institution)

The Health Insurance Sector: Asymmetric Information and The Lemon Problem

Source: http://www.cnn.com/2012/06/27/politics/btn-health-care/

Last time we talked about the disadvantage side of a universal health care. We also learned that the United States does not have a universal health coverage for American people unlike other industrialized countries. Today we will again focus on health economics and discuss some of the market failures of the American health insurance sector. Most of my arguments are inspired by Professor Gruber of MIT who is known as the architect of the new health reform in the U.S. You can find my reference at the end of the article and view his interesting lectures about the health insurance sector in America. I apologize for not preparing a standard reference of the articles that I cite. For simplicity I will show the link to the original articles so that you can use for future reference.

The World's Ranking of America's Health Care in the World

No doubt the United States is the most powerful nation on earth. Generally speaking, America loves to be number one. America is the number one largest economy in the world. America is number one when it comes to her total mighty military spending. America is number one in the movie industry, that is, the Hollywood movies generate billions of dollars at the box office. America also claims to be a leading country in promoting democracy and human rights in other countries. Well, the lists can go on and on. Despite having said that, when it comes to healthcare, America is nowhere near the number one spot in the world. That is according to the World Health Organization (WHO). Surprisingly, WHO ranked American healthcare system at number 37 in its 2000’s World Health Report. (http://www.who.int/whr/2000/en/). France’s health system was proudly ranked at number one. Another 2014 report of The Commonwealth Fund titled “Mirror, Mirror on the Wall, 2014 Update: How the U.S. Health Care System Compares Internationally” shows that American health system is ranked last among other 11 industrialized nations. You can find the latest report through this link. (http://www.commonwealthfund.org/~/media/files/publications/fund-report/2014/jun/1755_davis_mirror_mirror_2014.pdf)

Despite being on the number 37 spot in WHO’s world health system ranking and last in the latest 2014 The Commonwealth Fund’s report, as a matter of fact, Uncle Sam is spending a lot more on healthcare as a percentage of the GDP than any other industrialized countries in the United Europe. In fact, the U.S. spent 17.9% as a percentage of its GDP on healthcare in 2012, that is, almost 1 in 5 dollars in income is spent on the cost of health care.(http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS) It leaves us perplexed to learn that the most powerful nation is not number one in healthcare or at least in the top ten list.

Source: http://www.lean.org/images/shook_hcchart.gif

The Rising Cost of Health Care

According to the U.S. Census Bureau, 48 million Americans did not have health insurance coverage in 2012. To put the number in context, 15.4% of Americans were uninsured, that is, about 2 in 10 Americans were not covered by health insurance. (http://www.census.gov/hhes/www/hlthins/data/incpovhlth/2012/highlights.html). As a result, overwhelming health care spending on tests and hospitalization has been a leading cause of personal bankruptcies and homelessness in America. That is at least according to the National Health Care for the Homeless Council (NHCHC). In 2008 NHCHC estimated that health problems were responsible for 50% of personal bankruptcies in America. (http://www.nationalhomeless.org/factsheets/health.html) It is indeed a very concerning data for the 48 million uninsured Americans.

The cost of health insurance has also surged gradually over the past decades. In fact, the 2014 Employer Health Benefits Survey conducted by the Kaiser Family Foundation and the Health Research & Education Trust (HRET) found that “the average annual premiums for employer-sponsored health insurance are $6,025 for single coverage and $16,834 for family coverage.” (http://kff.org/report-section/ehbs-2014-summary-of-findings/)

Imagine a person who earn $2,000 per month and could he pay this kind of health insurance premium? This is why it is crucial to have a job in America so that you can be covered by the health insurance. As health insurance is getting more expensive along with the growing cost of health service, more and more people are unable to buy a health insurance plan. Young and healthy people also hesitate to purchase health insurance given its cost and perceived benefits.

Market Failure of the Health Insurance Sector

A large proportion of Americans receive their health insurance plans paid by their employers which is one of the means to attract talented individuals to work for their companies. Although some people are able to afford a health insurance plan, it does not necessarily guarantee that your health insurance application will be approved by the insurance company. To be more specific, some people are not qualified for health insurance given their pre-existing conditions. In other words, say for example John (a make-up name) has been diagnosed with kidney problems. To insure himself against future health hazards, he decides to obtain a health insurance policy from an insurance company called XYZ. Imagine if you were the one who run the insurance company XYZ, would you provide health insurance to John who has kidney failure, although you somewhat know that John has a high chance of getting sick at anytime? The insurance company might be generous and it is willing to help their clients, because the clients and the companies should grow together. That sounds good right? Insurance companies, however, are undeniably profit-oriented and there is a high probability that they would make a loss in the future if they decide to cover John. So is that a good business decision? Unsurprisingly, that is one of the many reasons why many people dislike insurance companies and labeled them as bloodsuckers and immoral. But that is what businesses do and how they operate to minimize cost and maximize profit. Are their behaviours right or wrong? There is no clear cut answer here. The answer lies in the gray area.

In addition to those who are not approved to be covered by health insurance, there is another market failure identified by economists in the health insurance market, caused by asymmetric information or in other words, the situation in which someone holds more information than another person. In the health insurance market, the buyer of the health insurance more often than not understands more about his own body and health condition better than the insurance companies. To avoid paying high premium for his health insurance coverage, the buyer could obscure his real health condition. Let’s say prone-to-illness people would be more inclined to buy a health insurance than healthy and young people. Because of asymmetric information in this insurance product's transaction, the insurance companies risk making a loss due to covering the cost of the opportunistic and unhealthy people. The insurance companies, consequently, would mitigate such risks by raising the premiums of the health insurance coverage. This increase in health insurance premium would ensure that insurance companies can make a profit in light of these kinds of uncertainty. In turn, more healthy people would stop paying the health insurance premium due to its increased cost, which drives the insurance companies again to raise the premium. This vicious cycle is a market failure in the economy or what economists specifically call the Lemons Problem or the Market of Lemons. That is the reason why insurance companies may choose to deny coverage of the buyers with pre-existing condition or even refuse to renew the coverage if he is found seriously sick.

Source: http://insideops.com/wp-content/uploads/2014/06/used_car_lemon.png

There is another group of uninsured people. They certainly want to be insured in the case of any personal calamity, but the problem is they simply cannot afford to pay the health insurance premiums. They are the people who are living under the U.S. government’s poverty line. To be more specific, the poverty threshold in 2013 on average for a family of four is $23,834, according to the U.S. Census Bureau. (https://www.census.gov/hhes/www/poverty/data/threshld/)

The bottom line is that due to asymmetric information, health insurance premiums have gradually increase which make it not affordable for many American and cause healthy people to stop buying the insurance coverage. On top of that, insurance companies also deny health insurance coverage to those who have pre-existing conditions or stop renewing the health coverage once the policyholder get sick. That is why there are close to 50 million Americans who were living without health insurance in 2012. These are some of the problems to manifest the fact that there is a market failure in the health care system in the U.S. The explanations also justifies the role of the government to intervene in the healthcare insurance industry. So how would the government fix this problem? I planned to discuss Obamacare in this article, but it appears that this article is unexpectedly long already. For this reason, I decide to keep the discussion on Obamacare for the next article. Thanks for spending time reading this long article Stay warm everyone!

- The article is for educational purpose. (No copyright infringement intended)

- The article does not represent the view of any institution or organization.

You may also want to go to MIT's OpenCourseWare from which I learn a lot about American health insurance market.

Gruber, Jonathan. 14.01SC Principles of Microeconomics, Fall 2011. (MIT OpenCourseWare: Massachusetts Institute of Technology), http://ocw.mit.edu/courses/economics/14-01sc-principles-of-microeconomics-fall-2011 (Accessed 17 Nov, 2014). License: Creative Commons BY-NC-SA

Introduction to Univeral Health Care: Understanding the Pros and Cons

Source: http://healthcarecommunication.files.wordpress.com/2010/10/patients-wecareaboutyou.jpg

One trivial question: “What do countries like England, France, Switzerland, Sweden, Germany, Australia and Canada have in common?” If it wasn’t because of Australia and Canada, “those countries are in Europe” would be a correct answer. Well, I can assure you that this article is not about geography. What those countries have in common is Universal Health Care. So what is Universal Health Care (UHC)? According to World Health Organization (WHO), universal healthcare or sometimes called universal heath coverage is “defined as ensuring that all people can use the promotive, preventive, curative, rehabilitative and palliative health services they need, of sufficient quality to be effective, while also ensuring that the use of these services does not expose the user to financial hardship.”  One of the goal of UHC is to promote “equity”, which is to ensure that quality health service is not only affordable for the rich but also for the poor. Another goal is financial protection against costly disease which could lead to personal bankruptcy for some individuals. Of course, a serious disease can put one person in jeopardy, both economically and physically. One reason is that the overwhelming financial cost incurred through treatment could be unbearable and another reason is that some seriously sick persons would not be able to go to work, which means their livelihoods (source of income) are pretty much in dismal.

American HealthCare System

So another trivial question: “What distinguishes the United States from the rest of the above countries?” Give yourself a round of applause if you confidently answer “No universal health care”. Surprisingly, the mere idea that the richest country in the history of planet Earth has no universal heath coverage for her people would leave a whole lot of people scratching their heads (including me of course). Healthcare in America is very expensive and that’s why many American buy health insurance policy from private insurance companies. The problem is not everyone can afford to buy health insurance in America. Another way American can get health insurance is through their employers. Besides, there are other social insurance programs known as Medicare and Medicaid, but I would not go into detail in this article.

The Complication of UHC: Tax Hike and Moral Hazard

The goals of UHC are desirable and commendable - a quality health service to everyone serving as a buffer against financial hardship resulted from costly disease. But why would the richest country in the whole wide world refuse to adopt such health care system despite all of the benefits for the people? Does it manifest the perception that America leaves the people in a situation in which they only care for themselves?  Come to think of it, America has its reasons for why universal health coverage is not rolled out. In all seriousness, no one enjoys seeing a poverty-stricken person unable to get treatment for his sick children or a person who has to liquidate all of his valuable assets and runs into huge debts just because he needs the money to pay the doctor to cure his wife’s chronic disease. You see, no one and no society dreams about this kind of scenario, because what we all have in common is “humanity”. We do feel compassion about the suffering of others. So UHC makes perfect sense in our society, but the painful truth is UHC does not come without a cost. In other words, it’s not free. Ultimately, someone out there must pay the price of providing treatment to everyone if a country wants to make UHC a reality, because after all universal health care system costs a great deal of money. To finance the cost UHC for the people, the feasible way for the government to do could be raising tax or running a large-scale government’s social insurance program. Well, raising tax could be a headache because it hurts everybody in the economy and jobs could also be eliminated as a results of tax hike. In addition to the problems associated with tax increase, a huge government insurance program run by the government might not be efficient and could cause a lot waste and inflexibility. We have seen in many occasions that private companies could operate more efficiently and utilize less resource compared to the government.

And then there is another complication. Let me ask you what you would do if electricity and water in your house are free or cheap to say the least. Yes, you would overuse your water and electricity like leaving the TV turned on all night or using the air conditioner or heater carelessly. By the same token, the overutilization of free health service when healthcare is free for everyone could also be a daunting problem. The overutilization of health service in an inefficient way as such is known by economists as moral hazard. As a result of people overutilizing the service, long wait time to meet with a doctor or to get treatment is the unintended consequence that comes along. A 2010 Commonwealth survey indicated that 43% of Canadian had to wait 4 or more weeks to see a specialists (http://www.healthcouncilcanada.ca/rpt_det.php?id=122). I have to clarify that one data could not represent the whole picture of a universal health care system because in contrast to Canada, only 9% had to wait 4 or more week to see a specialist in Germany and Switzerland. I choose this data in Canada to show the possibility that universal health coverage system could degrade the quality of health service rather than improving it.

Obamacare 

I have to admit that this article is far from perfect, since there are tons of stuffs that I should cover such as America’s social insurance program administered by the government called Medicare, state-run Medicaid and other statistics to demonstrate the problems associated with universal health coverage. But to do so, you know that long-hour extensive research is required. Having said that, I hope this article will serve as an introduction to the healthcare system in America and help us understand the pros and cons of a universal health coverage. I sincerely hope I can add additional details in the near future.

In the coming article, we will go through one of the most important legislation in America known as Patient Protection and Affordable Care Act (PPACA) or commonly known as Affordable Care Act (ACA) or even more commonly known as Obamacare. In the meantime, you can vist WHO’s website http://www.who.int/health_financing/universal_coverage_definition/en/ for the definition of UHC. Until then, I have to get back to my study and have a great weekend.

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- The article is for educational purpose. (No copyright infringement intended)

- The article does not represent the view of any institution or organization.

Why Can’t a Country Print More Money to be RICH? (Part 1)

By: Econoobics

Have you ever thought that a country could become rich by just printing more money? But why wouldn’t they do it? This idea of printing more money makes a lot of sense, because we use this paper which we call money to buy all sorts of stuffs that we can think of, ranging from necessity items such as food and clothes to luxury goods such as expensive tablets and jewelries. What that means is that the government can just ask the central bank to print more money so that the government itself can pay civil servants higher salary and invest in the country’s physical capital, including roads, bridge and irrigation. With great amount of money comes great power for the government. Wouldn’t it spur economic growth and development much faster? Eventually, everyone is wealthier and can relish a better quality of life on this wealthy island. This is one perfect scenario. I for once asked myself this question and the quest of finding a simple explanation led me astray. In other words, I couldn’t find the right answer to explain it. So I asked that particular question to a friend of mine and he could explain it in a much better way than I ever could. So now I am willing to explain it in a more convincing and simple way than he ever could.

***********

So let’s analyze the question together, shall we? Is it true that making money out of thin air, that is printing money, can make a country become rich at an instant? To answer this question, we have to ask ourselves what factors determine a country’s prosperity. In a fancy language or technical term, we need to understand the source of economic growth of a country. From the previous article, we learn that economic growth is the increase in output including goods and service within a specific period. Basically, the vast amount of outputs produced (cars, electronic devices, agricultural products, home appliance and other goods and services) is what makes a country rich and grow. To be more precise, it is the level of productivity, labor and capital with which a country can utilize to create goods and service for the people. These are the three main sources of economic growth. We should try to think of the economy as an apple tree which gives us apples to consume. The more the apples grow on the tree, the more we have apple to eat. With our below example, you will see that having a vast amount of paper that is money would not bring about such determinants of economic growth and definitely would not lead to prosperity. We will have a further discussion on the sources and determinants of economic growth in the future topics, but for the time being we will focus on everyone’s favourite topic — Money. (Almost everyone loves money, right?)

Source: http://fm.cnbc.com/applications/cnbc.com/resources/img/editorial/2013/08/13/100960148-169117081.530x298.jpg?v=1394819300

The above paragraph may sound somewhat confusing, so let me draw a simple example to better your understanding. Suppose that I was employed by the central bank of a country called Richland as the country’s Chief Economist and with my brilliant idea to boost prosperity on this peaceful island, I would adopt what economists calls an expansionary monetary policy, which means printing more money, so that the government can finance its huge amount of public expenditure to implement its 10-Year-Leap-Forward Strategic Plan. Our first priority is to increase the salary scale of our hardworking civil servants (police, teachers, ministers and other government officials) so that they can have more money to spend. After all, printing money is not a serious hiccup, because what we need are just ink and paper. At the end of the month, after our civil servants receive their increased monthly payroll, it’s time to let the spending spree begin. Everyone is better off now, so what we do with our money is spending and allocating some of the income for saving. For my case, the first thing that I would do is going to a Mercedes car dealer to order a new Mercedes-Benz S500. Then I would buy a new convertible laptop, buy a new phone, buy new clothes, order fresh organic farm products and other sort of things that I could think of. Now not only I who can afford a Mercedes-Benz S500, but also my colleagues, my friends, my teachers and my doctors can also afford it as a result of the abrupt and massive increase in their income. The question facing the car dealer now is that with this excess in demand for Mercedes sedans, should the car dealer raise the price of the car to maximize his profit or sell it at a normal price? Well, the answer is a no brainer. The car dealer would simply raise the price and sell out all of the cars. Still despite the extreme pricing of the luxury sedan, people are still queuing to buy a Mercedes and the car is now in a huge shortage (Assume that Mercedes is produce in Richland). To meet with this demand, the car factory needs to speed up its production of cars, but producing cars is not the same story as printing money. Cars take a lot more inputs before it can be produced. Those inputs include factory, assembly line, labour, wage, machine, know-how technology and the quantity of output that is able to be produced is limited. With this huge shortage in car and explosive demand, the price of the car definitely will skyrocket. This is only one story for a car company. How about the market of phones, clothes, food? The same story goes and price will certainly hit the ceiling, because production of these outputs could not meet with the excess of demand driven by the hike in monthly salary. After all, the capability of a country’s to produce goods and service is limited. This capability depends on its factor of production which are capital, labour and productivity. In contrast, the printing of more money did not help bolster the productivity of the economy, modernize the capital and upgrade the skills of the workers in order that more output can be produced. Let’s get back to our analogy of an apple tree. Our apple tree produces the same amount of apple for the consumers.

The aftermath of my great vision is the overall level of massive price increase within each sector of the economy which economists call hyperinflation. So are we better off? Say yesterday my salary was 1$ and I could buy an apple (real fruit not a tech product) for just $1. This morning my income is increased by 100% thanks to the Leap-Forward-Strategic Plan, so now I have $2 which I expect to buy 2 apples. But to my surprise the grocery owner tells me that the apple’s price is now $2. So with my increase in income, I still can only afford 1 apple. This is by no means I am richer whatsoever. I think with some of my examples you may probably have an intuitive feeling of why more money in each and every people’s pocket does not bring about prosperity as we wish. Our example of printing more money to massively raise the monthly salary of our government’s civil servants certainly does not spur economic growth but contrastingly results in unintended consequences that is a total catastrophe in the economy. Our story could go on and on. The price of a kilogram of rice may be 1,000,000 riva (a make-up currency) or a kilogram of sugar may cost 500,000 riva. It simply illustrates that our money is seriously devalued and the amount of money that is enough to buy a piece of bread yesterday may not be able to buy same piece of bread today. To sum it up, the increase in the money supply of the government only increases money in our pocket but does not increase the level of productivity of the factories or farms to produce more output to meet with our insatiable demand. In contrast, the over supply of money pushes the economy in a total chaos with extreme increase in the price level everywhere.

You may think that my example is just an imaginary situation and would never ever happen in real life. History taught us that the countries that defy the Principles of Economics often pay a heavy toll for their underestimation by printing more money to finance government deficit. We can draw empirical evidence from the past to prove this basic Economics principle which I will talk about in the next topic, hopefully. For now I hope we could understand the reasons why printing more money is not the right path to prosperity. Thanks to my extreme expansionary monetary policy, I am no longer hired as the Chief Economist of Richland. I hope to see you soon in Part 2 of this discussion.

Understanding Compound Economic Growth

The first concept of economics that we will explore today is economic growth. Have you ever come across a newspaper article reporting the projected economic growth of your countries? It is arguably one of the most important data in the macroeconomic setting of Amercia. The number of economic growth can also play a decisive determinant of the success or failure of a political party in an election. So what exactly is economic growth? How can economists determine that a country’s economy is growing?

Source: http://www.israeltrade.org.au/wp-content/uploads/2011/03/economic-growth.jpg

Gross Domestic Product (GDP)

Before digging deeper into the concept of economic growth, the term gross domestic product (GDP) should be brought up. Basically, GDP is total value of goods and services produced within a country for a specific period of time. In other words, GDP is the total output produced in a country or simply known as national income. Notably, GDP is a common indicator of the health of a country’s economy. The larger the GDP in the present compared to the previous period, the better it shows that the economy is growing which could means people are getting richer. Yet there is always exception to economic theory. While GDP is a popular indicator of the economy’s health, it does not necessarily mean it is the best and always gets the job done, since GDP does not take into account many aspects of human development and well-being. Country A with a larger GDP than Country B does not necessarily translate into a better standard of living. For instance, China is the world’s number 2 economy. Its GDP is much larger than Luxembourg, but Luxembourg people relish a much much better lifestyle and living standard. It is straying away from our main topic “economic growth” and I will keep the focus on economic growth and I expect to explore GDP in the upcoming posts of the blog.

Fun Way with Growth Rate Calculation

Economic growth simply is the increase or decrease in the size of the economy. Below I will show you the simple way to calculate economic growth – a very easy calculation. Supposed that the size of the GDP of Country A in 2013 is X_T and GDP in 2014 is X_T+1. So what is the growth rate? An exercise for X_T your brain.

 g =  (X_{T+1  -} X_{T ) /} X_T

With this formula, we can modify it to calculate the size of the economy with the given economic growth: 

X_T+1 = X_T × (1+g)

Ok so now here come a brain exercise that is a bit more challenging. Now we will calculate the size of the economy X with a “g” economic growth for 2 years in a row:

X_T+2 = X_T+1 × (1+g)

                                                                   = [X_T × (1+g)] x (1+g)

                                                                   = X_T  × (1+g)²

Therefore, we can derive a simple formula to calculate compound economic growth

X_T+N = X_T × (1+g)^N

If you don’t believe in this formula, that’s fine. Try to come up with an example of your own and substitute the real example into the formula then you will have the correct answer. 

A Blog dedicated to Economics

Greeting!!! This is the very first post of Econoobics.

Once upon a time I was advised by my good old friend whom I know so well since high school to consider writing a blog to improve my writing. So I did and I began to write random stuffs that come into my head. Disappointingly, just like many of my past aspiration, I am demotivated and the blog was left in the dust. But I did gain more than 20,000 views which I believe is somehow worth remembering to say the least. Right now my motivation is revitalized and I am back to my blog and this time I am back for the long run.

Dawn of a New Blog

My  previous blog was filled with overwhelmingly random stuffs ranging from economics to politics and from movie to sport. For this time being, I will have 2 blogs and I will share a proportion of my time to both blogs. My old blog is positioned to cover anything that interest me and hopefully interest some of you. The blog will encompass a variety of topics consisting of my experience, my belief on various issues and my pastime including football, wrestling and technology. 

This new blog will be much more organized and narrow to cover only topics related to economics. Starting from August I will pursue my master degree in Economics and I will be happy to share with you what I learn to the rest of the world and, of course, interesting knowledge pertaining to economics that is worth sharing. I pledge to dedicate my time and effort until I complete my MA to bring simple yet interesting topics which I hope will benefit some people who are doing research on the internet.

Econoobics Objective

I do not claim to be a mind-blowing writer nor do I possess an in-depth knowledge of economics. I am looking to sharpen my writing skills which is one major weakness of mine as shown in my TOEFL and GRE's writing score. With my current arsenal of knowledge, I certainly hope that I could be write overflowing with passion and inspiration. This is a journey that I embark on and I hope my writing will flourish along the way.

This blog aspires to benefit anyone who wish to seek out simple explanation of concepts related to economics which they can grasp to expand their knowledge repertoire. This blog will be written in a very simple and colloquial way to avoid being too academic and turn the reader off. While you are reading my blog, it would seem like I am speaking to you and by this way I hope that you will find economics interesting. I am inspired by one textbook that I read back when I was in university taking my bachelor degree. The book title Macroeconomics written by a university professor which is very easy to read yet does not compromise the quality of economic concepts. The friendly nature of the book supports me to keep on reading until almost the last chapter of the book. For this reason, this blog will be simple but of course it would not be too childish and sidetrack away from the topic. The middle way will be employed to approach this blog without being too childish and too academic.

I wish that this blog would be helpful to many people and especially accompany me to be a better writer. I am especially excited to see where this blog will lead me to.